Activist board hack is a boon for Symantec

Symantec says it has been talking with Starboard for several weeks and "values constructive input." Investors should hope it's not just words: Fresh oversight could help fix some of the bugs.

REUTERS

August 17, 2018, 20:00 IST

By Tom Buerkle

NEW YORK, Aug 16 (Reuters Breakingviews) - An activist hack could prove a boon for Symantec. Starboard Value is seeking five board seats at the $12 billion cybersecurity outfit after taking a 5.8 percent economic interest. Accounting troubles and upheaval in the company's enterprise software business have slashed a third off the firm's value this year.

Times should be good for security-software providers. Data breaches at companies like Equifax and the fear of Russian intrusion in everything from voting systems to the U.S. electricity grid have thrust such risks to the top of almost every executive's list of worries, if they weren't there already. Symantec should be well-placed with its LifeLock identify-theft protection, Norton anti-virus software and web security enterprise software.

Yet bloated costs and a shaky transition to selling business software by subscription rather than under a perpetual license, which spreads out the booking of revenue, have thrown the company off stride. Earlier this month executives forecast that sales would be flat in the year ending next March and that operating margins would decline by 5 percentage points, to 30 percent. They promised to slash headcount.

An accounting investigation further muddies the picture. A board committee is looking into concerns raised by a former employee about executive compensation and forward-looking statements. Although details are scarce, the company said earlier this month it did not expect any material impact on results for periods before the end of calendar 2017.

At a little over 11 times the next 12 months' expected earnings, according to Thomson Reuters I/B/E/S, Symantec's stock trades at a valuation discount of more than 50 percent to typical software peers, and far below the 75 times earnings multiple sported by cloud-based rival Proofpoint.

That bombed-out valuation appears to have given Starboard confidence to enter the fray. The activist hedge fund has targeted other troubled tech plays, taking stakes in chipmakers Marvell Technology and Mellanox Technologies last year and pushing for operational improvements. Its board nominees for Symantec include Richard Hill, Marvell's chairman, and Dale Fuller, a former chief executive at anti-virus software provider McAfee.

Symantec says it has been talking with Starboard for several weeks and "values constructive input." Investors should hope it's not just words: Fresh oversight could help fix some of the bugs.

(The author is a Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

- Starboard Value said in a regulatory filing on Aug. 16 that it had acquired a 5.8 percent interest in Symantec and was nominating five candidates for the cybersecurity company's board. Symantec shares, which had fallen by a third since the start of the year, were up nearly 7 percent at $19.82 at 11:46 a.m. EDT.

- Symantec on May 10 said that its board's audit committee had launched an internal investigation of certain accounting measures, including ones related to executive compensation and forward-looking statements.

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